Taiwan: Optimism in trade to rule over pessimism from investment
- Taiwan’s economic growth could surprise the market in Q3 2017, underpinned by exports growing 17.5% YoY in the quarter. Renewed growth in China has certainly helped together with the upbeat global outlook. Notwithstanding the reported weak sales and delayed shipment on iPhones, manufacturing PMI remained resilient at 58.7. Tourism is still supportive with a more moderate fall in Mainland Chinese tourists cushioned by a flow of ASEAN visitors due to the relaxation of visa policies.
- However, the Achilles' heel of the Taiwan economy is investment with two key underlying issues. First, the recent change in wage policy is unclear with uncertainties in labour cost. Second, the environmental impact assessment process is long and exhausting, which results in delay or even cancellation of projects. The other side of the coin is that opportunities in infrastructure and new energy could emerge if the hurdle is overcome. Under the Forward-looking Infrastructure Program (FIP), fiscal spending will play an increasingly important role to attract private capital. But this all still boils down to government’s ability to improve project implementation, which is clearly not the case in previous years.
- As for market developments, Taiwan Capitalization Weighted Stock Index (TAIEX) reached 10,750 after several corrections thanks to an increasingly participation of domestic individuals and the comeback of foreign institutional investors. For the bond market, Formosa bond issuance fell 38% YoY to 9,969 million USD in Q3 2017 but with regained diversification of issuers. In particular, APAC and MENA issuers have increased their issuance amount, especially those from the financial industry.
- All in all, with tailwinds in the external sectors but still weak investment, we expect the Taiwanese economy to accelerate growth slightly in Q3 2017 from 2.1% to 2.2%. Longer term prospects will hinge on whether the government could increase fiscal spending effectively and stimulate domestic investment.
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